Inform. Empower. Advance.

Low Wages in India's Manufacturing Industry

Mary Mederios Kent

(July 2010) India is the fourth-largest economy in the world, accounting for 4.6 percent of the world's gross domestic product. India is also on its way to becoming the world's most populous country; it is expected to surpass China within the next 20 years. With its 1.2 billion inhabitants, India is home to about 17 percent of the world's population.

Yet India's exports in 2007 were only 1 percent of the world's total. The Government of India's National Manufacturing Competitiveness Council believes that India's export levels are far below potential and considers manufacturing "the main engine for economic growth and creation of wealth" for the country. India has been identified as a potential manufacturing giant by outsiders as well, and has generated interest in the global marketplace because of its low cost of labor and large population.

There is little solid data about India's formal or "organized" sectors, and even less about the informal economic sectors in which most Indians work—data that would aid in economic planning and analysis by both government and industry.

Because of India's economic prominence, the U.S. Bureau of Labor Statistics (BLS) conducted a research project to study the labor costs of the manufacturing industry in India, with help from PRB senior demographer Carl Haub and from O.P. Sharma, PRB consultant and the former deputy director of census operations in India. The results, summarized in a recent article in the Monthly Labor Review, are the first-ever estimates of compensation in India's organized manufacturing sector—the portion of the country's manufacturing activity that is formally registered with Indian state governments and therefore subject to regulation. This sector produces more than two-thirds of India's manufacturing output, and its firms are more comparable to businesses in developed countries than those in the country's unorganized sector.

The BLS study estimated that in 2005 (the most recent data available), employers in India's organized manufacturing sector paid employees an average of US91 cents an hour—just 3 percent of the compensation level of manufacturing employees in the United States. The vast majority of India's labor force, who work in the unorganized sector, likely earn much less.